AMD Stock Price Up 7% After CEO Sets Ambitious Target

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Mar 7, 2020
Updated: Apr 3, 2020
  • CEO Su expects the annual compound growth rate of 20% over the next four years
  • Gross margins should travel north of 50% while sales may rise up to 30%, says Su
  • Analysts increase AMD stock price target, but warn that much of the growth has already been priced in

Shares of Advanced Micro Devices (AMD) (NASDAQ:AMD) closed the week nearly 7% higher as the price recovers from the coronavirus selloff. Moreover, the company’s CEO said it expects the company to achieve revenue growth of 20% over the next four years.

Fundamental analysis: Ambitious target set

Lisa Su, CEO of AMD, believes that the company can generate higher revenues as well as higher profits in the coming years on the back of reduced production costs. She expects AMD’s revenue to rise at a long-term compound annual growth rate of 20%.

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“We’re a much stronger company than we were five years ago. The opportunities are larger,” said Su.

The company previously communicated that it expects revenue in the range of $1.75 billion and $1.85 billion for the first quarter. Su said gross margins are expected to rise above 50%, while sales are expected to rise between 28% and 30% this year.

Following Su’s remarks, Atlantic Equities analyst increased AMD stock price target to $60 from $37 due to “significant cost advantage in manufacturing”.

“We suspect most bulls in the stock were already there, and probably a year or so earlier (hence we are unconvinced that it necessarily provides a strong catalyst for significant upside with the shares in the ballpark of $50),” said Bernstein analyst Stacy Rasgon.

On the other hand, Morgan Stanley analyst believes that the projected growth may have been priced in already.

“The debate continues to be mostly around valuation, with the stock already trading at over 20x the company’s 2023 EPS targets — and while there could certainly be upside to that target, we’re inclined to see upside/downside as fairly balanced,” said Morgan Stanley’s analyst Joseph Moore.

Su also said that AMD faces disruptions in the supply chain amid the coronavirus outbreak, although things are almost back to normal. The company previously said it expects “a modest impact” from the coronavirus.

“AMD expects the impact from COVID-19 in the first quarter to be modest, potentially resulting in revenue coming in at the lower end of the guidance of approximately $1.8 billion, plus or minus $50 million. Full year 2020 financial guidance remains unchanged,” said AMD in a press release this week.

Technical analysis: Supports provides a base for a move higher

Similarly to some other stocks, AMD stock price recorded an all-time high just days before the market corrected lower amid the coronavirus outbreak. Shares lost around 30% of the value in a week’s time, before recovering around half of the losses.

AMD stock weekly chart (TradingView)

The target on the upside remains the recent record high just below the $60 mark, while the former resistance around the $41 handle has already provided a support to stock price. If the market recovers from coronavirus-related fears, we may see AMD stock progressing higher to test new highs.

Summary

Shares of AMD closed the week 7% higher as the stock price recovers from the recent market selloff. The stock has been supported by bullish claims from the company’s CEO on revenue growth, which also prompted some analysts to increase the target price.

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